Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2011
NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.
December 2011 - View all for this month
Raymond Thomas Blunk
OS/2007008935009
Blunk recommended that customers participate in a Stock-to-Cash program under which customers would pledge stock to obtain loans to purchase other products. Customers obtained non-recourse loans, totaling approximately $1.8 million, from a non-broker-dealer company and pledged stock to that entity as collateral for the loans; the pledged stock would be transferred to the loaning entity’s securities account, which was maintained at a clearing firm.

The loans were in amounts up to 90 percent of the value of the pledged stock and were typically for a short period of time, usually three years, with no payments required during the term of the loan; instead, customers were required to pay the full principal and interest due at the end of the loan term. Customers used some of the loan proceeds to purchase insurance products through Blunk. 

Documentation used by the loaning entity made it appear that the entity was retaining the securities customers pledged and might use those securities to enter into hedging transactions, but the customers actually conveyed full ownership of their stock to the entity conducting the program, which routinely sold the securities upon receipt and often moved the money into its own bank account. 

When the entity became unable to make complete payments to customers with profitable portfolios, it used the proceeds from the sale of securities new customers pledged to pay off its obligations to existing customers and diverted money to pay for expenses not related to its operation. Blunk did not undertake adequate efforts to find out what happened to the stock that was conveyed to the lender; he relied on information the persons marketing the program provided and assumed that the lender was a broker-dealer holding the stock for his customers in custodial accounts. Blunk did not undertake any steps to verify this mistaken assumption.

The intermediaries with whom Blunk dealt refused to provide more information when he tried to obtain information about the lender and nevertheless, continued to entrust his clients’ securities to the lender.
Raymond Thomas Blunk: Fined $15,000; Suspended 25 days
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